By Bhavik Patel
Gold is only a commodity whose volatility is relatively low compared to other assets. Gold is stuck in the range of $1805-$1860 where both bulls and bears are playing tug of war. We are not expecting any rally until some confidence returns to the market. Right now markets are shuddering under the fear of recession. There is a shift in the market as inflation fears are giving way into recession panic which is helping the US dollar and Gold. Investors are shifting from risky assets like Equity and crypto currencies to safe haven assets like Gold and US Dollar. Gold’s outlook would be bearish if the Fed remains too hawkish.
One of the reasons for lack of rally in gold is it appears traders are more focused on the bearish aspect of less demand coming from a possible U.S. and/or global economic recession, and less on the bullish aspect of inflation being historically bullish for hard assets like the Gold.
Another phenomenon we have seen is blanket selling in all commodities due to rising rates and recession fears. Be it energy packs like crude and natural gas, base metals pack, equity asset class, crypto currencies and even agriculture commodities. All are subject to selling pressure barring Gold and US Dollar. Federal Reserve Chairman Powell’s comments to a Senate panel on Wednesday did little to alleviate worries the U.S. economy will slip into recession in the coming months. Even he is acknowledging that it would be challenging to engineer a soft landing for the US economy which means we won’t see any deep correction in gold. We have already seen buyers getting active around levels of $1800 so that would be a good level for any fresh long position. Now that the US Fed meeting is over, the next trigger for the market would be inflationary data.
Gold continues to consolidate at current levels in MCX. Volatility index has been shrinking and it appears gold is setting up base. Both the 20 and 50-day moving average is hugging prices since 19th May indicating how narrow bound gold’s movement has been since last month.
RSI_14 is also neutral at 46 indicating both bulls and bears are at level playing field. Important support for gold comes at 50000 and 49500 levels. Resistance comes at 51800-52000 level. Looking at range bound trading, trade set up for investors should be to buy around 50000 level and book profits around 51800 and any existing long positions should be exited around 51500 as sellers have heavy hands around that zone. Fresh long can be taken above the breakout of 52000 for targets of 53000 and stoploss of 51400.
(Bhavik Patel is Commodity and Currency analyst at Tradebulls Securities, Views expressed are the author’s own.)